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A Man For All Seasons

French President Jacques Chirac said corporate taxes should be lowered to increase the country’s competitiveness. With a tax rate of about 33 percent, Chirac noted the levy in France is about 8 percentage points above the European average.“The goal should be bringing it to 20 percent in five years” Chirac, whose second term ends in May, said in a speech to business leaders and union representatives in Paris yesterday.

France’s economic growth in 2006 lagged behind Germany’s for the first time since 1994 after a slump in exports pushed the trade deficit to a record and the weakness in industrial production reflected the loss of market shares suffered by french carmakers. In contrast to Germany, the world’s biggest exporter, France traditionally has relied on consumer spending for expansion.“It would allow French companies to hire more”, Bernard Arnault, chairman of LVMH Moet Hennessy Louis Vuitton SA, said after attending the speech. “These are excellent ideas to explore”.
Jean-Claude Mailly, general secretary of union Force Ouvriere, said the proposal reflected “dangerous logic” because French companies “will never be as competitive as those that pay their workers less or don’t pay taxes at all”.Chirac didn’t tell how to fund the cut in corporate tax rate. Not really surprising. Maybe Chirac is thinking of new taxes to fund tax cuts, since he appears unwilling to cut public expenses.

In the same time, Chirac made another bizarre proposal: private equity funds should be forced to give a “significant” fraction of about 20 percent of the capital gain made during the sale of a company to employees of the firm that’s being sold.“That will put us under strong pressure”, said Gonzague de Blignieres, head of Barclays Private Equity France in a telephone interview. “We need to find a system to allow employees to become shareholders without having as much at risk as managers”. In our opinion, employees should become shareholders investing outside their own employer company.
De Blignieres said AFIC, a French private equity association he used to chair, is in touch with the government to implement such a measure. Sharing capital gains with employees is likely to create value for all investors, he said. We don’t think so.

The government should also help employees buy back companies through tax breaks, legislative changes, and the creation of a state-run fund charged to invest alongside employees, Chirac said. A quasi-socialist and flawed regime, where employees are not any longer employees, but they are not managers, a weird creature unable to compete on international markets.

Chirac is maybe starting to accept what french politicians have always tried to fight: tax competition. That is, a competition between countries, regions and economic systems. Just a few months ago, prime minister Dominic De Villepin and the now-presidential candidate, Nicholas Sarkozy, were fighting to impose a minimum (and high enough, of course) european corporate tax rate, just to resist the pressure coming from far more dynamic economies, like those in Eastern Europe, and from their flat tax regimes.

Or, more likely, Chirac is just campaigning for himself, since he didn’t decide to run for a third presidential mandate yet.
As always, Chirac is multiplying promises on the eve of elections. Just before the referendum on the European Constitutional Treaty, Chirac was telling the French that saying yes to the referendum was saying no to a wild globalisation. But the French didn’t buy it. Just to give you another evidence that french politicians (conservatives or liberals) are not exactly free-market supporters, here’s a quote from French Socialist presidential candidate Ségolène Royal’s New Year Message:

From today, it is time to prepare for France’s Presidency of the European Union in 2008. I want a Europe that protects against the disorder of globalisation, where the only law is that of the market.

France and Italy are now the main forces behind the so-called “eurosclerosis”, the european decline. But now that the german giant is alive and kicking again, they will be forced to react, somehow.